INVESTMENT HIGHLIGHTS

• 1QFY19 earnings missed expectations

• Net losses of -RM1.5m in 1QFY19

• FY19F/FY20F earnings estimates trimmed by 10.5%/4.5% respectively

• Maintain NEUTRAL with lower TP of RM0.58 (previously RM0.53)

1QFY19 earnings missed expectations. United U-Li’s (U-Li) made a net loss of RM1.5m for the quarter. This is against our and consensus full year earnings estimates of RM9.5m and RM5.6m respectively. The negative variance is mainly due to a slowdown in the construction industry that led to lower revenue on-year and persistently high operating costs.

Net losses of -RM1.5m in 1QFY19 compared to a net profit of RM0.6m in the previous year. The losses can be attributed to revenue that slid 9.2%yoy to RM44.0m amid operating costs that continue to rise. Among others, labour costs are higher as a result of the higher minimum wage. Notably, revenue from Malaysia dropped by 13.2% to RM36.7m partially due to the push back of projects. This is, however, cushioned by export sales that increased by 17.7%yoy to RM7.3m.

Sequentially, net loss widened to RM1.5m from RM1.23m in 4QFY18 as revenue shed 9.1%qoq. Revenue for the cable support system declined 9.9%qoq to RM36.6m resulting in PBT dropping by 58.8%qoq to RM0.84m. On the other hand, electrical lighting and fittings revenue fell 5.7%qoq to RM7.43m. Loss before tax for the segment widened to RM1.98m from RM0.97m in 4QFY18.

FY19F/FY20F earnings estimates trimmed by -10.5%/-4.5%

to RM8.64m/RM10.47m respectively. The revisions come after taking into consideration of the slower than expected growth for the construction industry as well as operating costs that remain elevated.

Maintain NEUTRAL with an adjusted TP of RM0.58 (previously RM0.53) as we roll our base year to FY20F. Our TP is derived from 12x PER on FY20F EPS of 4.81 sen and our valuation method is unchanged. We are Neutral on the stock due to its unexciting nearterm prospects. On a positive note, its balance sheet is still healthy with a net cash of RM12.8m.

Source: MIDF Research - 31 May 2019